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If you have a Qualified Domestic Relations Order (QDRO) in your future – for yourself or for a client – it is critical to have a solid understanding of the process, the requirements and the rationale behind ERISA law. The Department of Labor has put together a comprehensive booklet that covers all facets of a QDRO. It is a great resource for answering questions you might have about the what, why and how of these important divorce-related documents.

 

If a QDRO is part of your life, be sure to review The Division of Retirement Benefits Through Qualified Domestic Relations Orders. It never substitutes for professional advice from a QDRO expert, but it is an excellent place to start.

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A Qualified Domestic Relations Order (QDRO) is a legal document that creates and recognizes the rights of an alternate payee with regards to future benefits payable to a participant of a retirement plan. QDROs are primarily used as part of divorce proceedings, when one of the spouse’s retirement plans needs to be divided between the parties as part of the final property settlement. Without a QDRO, many retirement plans could not be divvied up between the spouses which could result in unfair property divisions.

 

The QDRO is the legal document that the retirement plan administrator relies on to divide a participant’s account. If the QDRO is not prepared properly, the plan administrator will not be able to divide the plan, leaving the non-participant spouse without his or her anticipated share of the other spouse’s retirement account.

 

As the name implies, a QDRO is limited to use in domestic dissolution cases. In fact, the law is very strict on the terms of the QDRO, especially when it comes to naming the Alternate Payee. In order for an order to qualify as a QDRO, an alternate payee cannot be anyone other than a spouse, former spouse, child or other dependent of a plan participant.

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Given the potential complexity of preparing a Qualified Domestic Relations Order (QDRO),  most family law attorneys will offload the task of QDRO preparation to a professional who focuses his or her practice on drafting these unique documents day in and day out.

 

Still, it is important that any lawyer who deals with QDROs understands the key questions to ask during the negotiation process. Failing to understand the nuanced information that can adversely affect the acceptance of a QDRO by a plan administrator can send negotiations back to square one.

 

Do you have a copy of the plan documents?

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ERISA rules require that qualifying retirement plans (whether defined benefit or defined contribution) allow for a plan participant’s spouse to receive a survivor benefit in the event of the participant’s death. There are many different provisions that provide for this under current federal law, including a Qualified Joint and Survivor Annuity (QJSA) or a Qualified Preretirement Survivor Annuity (QPSA), as well as distribution of the entire plan balance to a spouse upon the death of a plan participant.

 

Knowing how valued the surviving spouse is under QDRO rules, it should become apparent why designation of the surviving spouse (and his or her rights) is critical when a plan is divided. This becomes even more important when the plan participant remarries. In such cases an ex-spouse of a plan participant could see any benefits to which he or she was once entitled, awarded to the participant’s new spouse in the event of a remarriage. This is why it is so important in a divorce to articulate the exact rights of the first spouse when it comes to survivor benefits.

 

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Today you may not think twice about splitting military retirement benefits during a divorce. But it wasn’t always that way. A 1981 U.S. Supreme Court decision, McCarty v. McCarty, actually precluded state courts from dividing military retired pay as an asset of the marriage. In response, Congress passed the Uniformed Services Former Spouses’ Protection Act (USFSPA in 1982. This legislation specifically gave a state court the authority to treat military retired pay as marital property and divide it between the spouses.

 

Of course, the actual process to divide these unique accounts is slightly different than standard retirement accounts. Rather than using a Qualified Domestic Relations Order  ("QDRO"), military retirement accounts are divisible using a Military Retired Pay Division Order.  


The Defense Finance and Accounting Service (“DFAS”) has very specific rules about how and when military retirement pay can be divided.  For a division of retired pay as a property award to be enforceable under the USFSPA, the former spouse must have been married to the service member for at least 10 years, and during that time the service member must have performed at least 10 years of creditable service. This is referred to as the 10/10 requirement.

 

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A Qualified Domestic Relations Order (QDRO) is a legal document that creates and recognizes the rights of someone other than the account holder to benefits from the retirement plan. This “someone other” is formally referred to as the “alternate payee.”

 

QDROs are primarily used as part of divorce proceedings, when one of the spouse’s retirement plans needs to be divided between the parties as part of the final property settlement. Without a QDRO, many retirement plans could not be divvied up between the spouses, which could result in unfair property divisions.

 

The QDRO is the legal document that the retirement plan administrator relies on to divide a participant’s account. If the QDRO is not prepared properly, the plan administrator will not be able to divide the plan, leaving the non-participant spouse without his or her anticipated share of the other spouse’s retirement account.

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ERISA laws state that the plan administrator must determine whether a domestic relations order qualifies as a QDRO within a “reasonable time.” What is reasonable depends on the unique circumstances of every case.

 

One way you can speed the process along is by ensuring that your proposed QDRO is clear and complete when submitting it for plan administrator review. Also submitting it before you obtain the court’s signature will help identify any missing information or clarifications needed.

 

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It may seem intuitive to approach the US Department of Laborto seek guidance on individual Qualified Domestic Relations Orders (QDROs). After all, this is the government agency tasked with creating and enforcing the ERISA rules surrounding these legal documents.

 

However, the Department of Labor refrains from offering advisory opinions on whether a domestic relations order qualifies as a QDRO. Why? Because their position is that whether an order is a QDRO requires an interpretation of the specific plan’s provisions and application of those facts to the case at hand.

 

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I’ve written extensively in the past about the need to include clear and direct language covering every contingency in your Qualified Domestic Relations Order (QDRO). Failing to do so will often result in unexpected outcomes that can be detrimental to one of the parties.

 

A recent case from the Fourth Appelate District Court of Appeals in California illustrates what can go wrong when language is omitted from a QDRO.

 

In the case, a final Marital Settlement Agreement (MSA) awarded the wife $113,392 of the husband’s retirement account. However, the MSA was silent as to whether this amount included losses or gains between the date of the divorce (April 13, 2010) and the date a QDRO was executed by the plan administrator (sometime in 2014).

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Dealing with Qualified Domestic Relations Orders (QDROs) can be a minefield of malpractice for the non-QDRO expert. While a QDRO is often a key component of many divorce settlement agreements, too often the parties and their attorneys don’t fully understand the details behind these complex documents.

 

In Part One and Part Two of this series, I explained some of the most common mistakes made when handling QDROs during a divorce. In this final installation, I offer a few final observations of common errors I’ve seen in my more than 10 years of working with attorneys and clients to prepare QDROs.

 

Failing to Understand Survivorship Issues

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There are many ways malpractice can arise, but one of the most common is simply a lack of knowledge about complex topics. This is especially true when it comes to dealing with Qualified Domestic Relations Orders (QDROs).

 

These specialized documents, when properly drafted, can make the division of retirement assets a relatively smooth and error-free process. On the other hand, when a QDRO contains errors, it can turn marital property division into a landmine of post-judgment litigation.

 

In Part One of this series, we covered several of the most common errors associated with QDROs. Today we bring you a few more.

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Malpractice. The word strikes fear deep in the heart of even the most experienced lawyer. While attorneys don’t intentionally set out to make mistakes that open them up to liability, often times a lack of knowledge causes unintentional errors that lead to bigger issues down the road.

 

After ten years of working with attorneys and their clients to prepare Qualified Domestic Relations Orders (QDROs) and other retirement account division paperwork, I have seen, first-hand, some very common mistakes that are made when it comes to dealing with these complex documents.

 

Omitting Key Terms in the Separation Agreement

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If you are going through a costly divorce, receiving a lump sum of cash when things are finalized is often a welcome relief – and a pressing need. Attorney fees, outstanding debts or a down payment on a new home are all things that come to mind as necessities at this trying time.

 

And for anyone expecting a share of their former spouse’s retirement plan, receiving that resource all at once is quite appealing. In fact, “can I get a lump sum distribution?” is one of the questions I’m most often asked when preparing the Qualified Domestic Relations Order (QDRO).

 

The answer I always give is, “It depends.”

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If you’re going through a divorce, there are many tax implications to consider before agreeing to a final settlement. Who keeps the marital home? Who gets the dependency exemptions for the children? How should assets be divided?

There’s one area that is ripe for miscalculation when it comes to federal taxes – dividing retirement accounts. Failing to properly transfer these accounts in a divorce can often lead to very unintended tax consequences for both the account holder and the alternate payee.

Read on for more information about how federal tax is implicated when a Qualified Domestic Relations Order (QDRO) comes into play in your divorce.

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When it comes to dividing benefits under defined benefit or defined contribution plans, there are two common approaches. The approach used can make a significant difference in when and how an alternate payee will receive benefits under the Qualified Domestic Relations Order (QDRO).

 

Shared-Payment Approach

This approach gives the alternate payee a part of each and every benefit payment made to the plan participant. This approach is useful if the plan participant is already receiving payments when the QDRO is prepared.

 

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Adding another professional to your team when you’re going through a divorce can seem like a costly proposition. Yet failing to see the forest for the trees and cutting corners when it comes to professional advice can cost you far more in the long run. Especially if you have what is considered a “high net worth union.”

 

On such necessary team member is a Certified Public Accountant. A CPA can help you identify the pros and cons of every property division scenario, including identification of long-term tax implications for you. This is especially helpful if you will be dividing retirement accounts as part of your property division. In those cases, many people plan to take some of a retirement account distribution as cash. They do this in order to pay off debts that linger after the divorce.

 

However, even if you intend to roll all retirement account proceeds into an account of your own (and avoid immediate tax issues), you’ll still want to know how to value those proceeds against receipt of other possible marital assets. A CPA can help you anticipate, address and allocate tax liability and properly offset that future liability during negotiations.

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When it comes to preparing Qualified Domestic Relations Orders, there is one concept that is very important. It has to do with defining “earliest retirement age.” The definition of this is important, because it governs the exact date when an alternate payee may receive standard payments under the QDRO.

 

Federal law defines “earliest retirement age” as the earlier of two dates:

 

·      The date on which the participant is entitled to receive a distribution under the plan, or

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Nobody likes rejection. Especially when it comes to a court order. Yet, rejection is a painful reality in the world of Qualified Domestic Relations Orders (QDRO). But why?

 

Every qualified retirement plan has a plan administrator who owes a fiduciary duty to the plan and its participants. Part of the plan administrator’s duties is handling Qualified Domestic Relations Order (QDRO) requests when they are submitted. It is the administrator’s duty to review the proposed QDRO to ensure it meets with the terms of the plan itself.

 

On some occasions, a proposed QDRO does not fulfill the requirements of the plan or attempts to assign rights not granted under the plan. Regardless of the reasons, if a plan administrator determines that the QDRO does not pass muster, ERISA laws require certain actions to be taken.

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Posted by on in Common QDRO Mistakes

I was recently asked to guest blog on the prominent divorce information website, Leave Strong Divorce Services.

 

I'd like to share that blog with my readers here. It offers essential information for anyone in need of a Qualified Domestic Relations Order.

 

Read my guest blog here.

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When you’re going through the expense of a divorce, it is understandable that you’re looking for ways to cut corners and save a few dollars. After all, divorce is an expensive proposition under even the best of circumstances. One area where spouses try and avoid additional expense is preparing a Qualified Domestic Relations Order (QDRO).

 

After all, from the plan participant’s perspective, if his or her soon-to-be ex is going to get half anyway, why not just withdraw that money and hand it over directly? This would save the cost of preparing the QDRO and happen faster anyway. Right?

 

As appealing as that solution seems, it is a mistake, especially for the plan participant.

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